Having an Estate Plan vs. Probate
If you are avoiding estate planning because you think you do not have enough assets to probate or you think estate planning is only for people with lots of money or children, I’d like to invite you to give it some more thought. Putting together a plan for your final affairs is important for everyone. Leaving important decisions regarding your estate to the government is usually not in anyone’s best interest.
In this article, I answer common questions about estate planning and the probate process and how estate planning can help reduce the amount of influence the government has over your estate.
What is the Probate Process in California?
Probate is the legal process of paying final debts and distributing property to heirs after a person’s death. Most assets owned by an individual become the property of what’s called “the probate estate.” The assets pass through the probate estate to the person’s heirs. However, some assets pass directly to beneficiaries instead of going through probate.
Through the estate planning process, you can reduce the number of assets subject to probate. You also ensure that any assets that pass through probate do so as quickly and efficiently as possible. In other words, estate planning can help your loved ones avoid a time-consuming, costly process.
Estate vs. Intestate — The Value of a Will
One of the most basic estate planning tools is a will. With a will, you can:
- Appoint a person to administer your estate;
- Choose your heirs, including friends, distant relatives, and charities;
- Appoint a guardian and trustee for your children;
- Set up a testamentary trust for your children;
- Direct distribution of assets; and,
- Make your wishes known regarding a funeral, memorial service, and burial arrangement.
When a person has a valid, legal will, the probate court recognizes the person’s wishes and directs the administrator to distribute the assets and handle the final affairs according to the terms in the will.
However, if you die without a will, you die “intestate.” This means that California intestate laws dictate the distribution of your property, regardless of what you may have told friends and family. A family member or other party must petition the probate court for appointment as the estate administrator. Your family members do not have control over how your property is distributed. Any asset that does not pass directly to a beneficiary, such as life insurance proceeds or retirement funds, is subject to intestate succession laws.
According to California intestate succession, your spouse inherits all community property and all separate property if you do not have any children. If you have children, your spouse inherits all community property and a portion of your separate property. Your children inherit the other portion of your separate property.
If you do not have a spouse, your children inherit everything. If you have no spouse and no children, your parents and siblings would be next in line. The intestate succession continues through successive degrees of relatives until someone inherits all of your property.
How Can You Avoid the Probate Process?
One of the most common estate planning questions people ask is whether they can avoid probate. With careful estate planning, you may eliminate all probate assets or greatly reduce the number of assets subject to probate.
Estate planning tools to avoid probate include:
- Non-Probate Assets
Non-probate assets pass directly to the beneficiary you name for the asset. Examples of non-probate assets include life insurance proceeds, most retirement accounts (IRAs, 401k, etc.), payable-on-death (POD) accounts, stocks, investment plans, and bonds. You need to make sure that you complete the beneficiary form and update the form if you want to change the beneficiary.
- Jointly Owned Property with Right of Survivorship
The property you hold with another person as a joint tenant creates a right of survivorship so that the property does not pass through probate. You are not required to be married nor related to the other person to hold property in joint tenancy. You may also hold community property with right of survivorship with your spouse to avoid probate when one spouse dies.
- Revocable Living Trust
A living trust is an entity created through a written trust agreement. You fund the trust by transferring assets into the trust’s name. A trustee manages the trust assets for the benefit of the trustees. During your lifetime, you may serve as the trustee and beneficiary. Therefore, you retain control over the assets and benefit from the assets.
Upon your death, a successor trustee you name in the trust assumes management of the trust and distributes the trust assets directly to the beneficiaries named in the trust without the assets going through probate. Because the trust is revocable, you may change the trust or end the trust during your lifetime. At your death, the trust becomes an irrevocable trust and cannot be changed.
- Transfer-on-Death (TOD) Assets
Some assets can pass directly to another person without going through probate through a TOD designation. You may designate a TOD beneficiary for securities and motor vehicles.
Do You Still Need a Will if You Have an Estate Plan to Avoid Probate?
Yes, everyone should have a will to cover any assets that may not have a beneficiary designation, right of survivorship, POD, or TOD clause. A will also allows parents to appoint a guardian for minor children and a trust to manage a child’s inheritance. Parents should also carefully consider how to transfer assets outside of probate in the trust for their children.
The estate planning process addresses all questions related to beneficiaries, heirs, minors, taxes, debts, expenses, and probate. With the right estate plan, you maintain control over decisions regarding your assets and final affairs, even though you are no longer able to express those wishes yourself.
Do You Have Estate Planning Questions?
The above techniques to avoid probate may or may not be the best choice for your estate plan. Another method of avoiding probate may be a better choice given your circumstances. Careful consideration of taxes, the needs of family members, the timing of asset distributions, the costs of probate, and the costs of probate alternatives are evaluated when going through the estate planning process.
We are here to help you evaluate the various options for asset protection, providing for loved ones, charitable giving, reducing taxes, and eliminating probate to determine the best options for you. Through our guidance, you can accomplish your estate planning goals while protecting everyone you care about long after your death.